Question

 As you have seen, your choice of operating structure can have significant and long-lasting impacts on taxes, capital sources, and legal protection.

Provide an example of a business, and give a recommendation as to what form of organization they should consider and why. What are some of the major considerations?

Answer 1

The business example taken is that of a hairdressing salon. This business is not expected to expand too much from the beginning. The business requires limited investment and a stronghold on the operations. Hence sole proprietorship would be the best form of organization for this business. This form of organization will give the owner complete control over the operations of the business. He can take quick decisions and invest as much capital as he has. There will be no interference from other parties. There are no legal formalities for the setup and formation is very easy and quick.

However in case the business grows beyond expectation, the owner would be faced with certain considerations such as sources of raising additional capital. Lack of credibility in the market is another drawback of this form of organization. This will hold back the business from being able to raise capital through debt. Moreover the owner will be subject to unlimited liability which will put him and his personal assets at stake.